SPX Credit Spread Trader

Imagine you are interested in the 1180 strike to sell puts and the SPX is at 1230 in the morning. If the index is up 10 points and you are looking at the 1180 strike, it will be worth less than it was in the morning. Now imagine the SPX instead went down 10 points from the open. Now the 1180 has increased in price and you are selling a more expensive put.

I sell puts on down days because that is when the puts are moving higher and sell call spreads on up days because the calls are moving higher. The move does not change my strike selection or view of the market so just because the market is down today, does not mean puts are bad. If 1180 is my strike, then I am better buying it on a day where the premiums are facing upward pressure.

It is about trying to get as much premium as possible. Better to sell a side when the index is leaning that way instead of when it is leaning away and then watch it run towards you and those premiums jump in value, after you are already short. I am just trying to get as much as possible so I want to sell when the premiums are juicy for the day.

Also when the index is moving lower, the puts get more action and it is easier to split the spread. Not guaranteed but certainly more action to make it easier.

Phil


Quote from andysmith:

Phil,

Please explain a bit about buying put spreads on down days and call spreads on up days -- it is a bit counter intuitive!
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Phil/ryank -- thanks, makes sense (as long as it's not the start of a downturn, but that's what support/resistance is for).

Just for fun, I looked for a spread on the OEX that is equivalent to the SPX 1265/1275. Works out to be 535/545 -- both trades have 93% probablity. It's going for $0.75 credit -- I would have expected it to be closer to the SPX credit of $0.95.
 
Apples and oranges....just because they are 10-points apart they are not the same thing. :)

Phil

Quote from andysmith:

Phil/ryank -- thanks, makes sense (as long as it's not the start of a downturn, but that's what support/resistance is for).

Just for fun, I looked for a spread on the OEX that is equivalent to the SPX 1265/1275. Works out to be 535/545 -- both trades have 93% probablity. It's going for $0.75 credit -- I would have expected it to be closer to the SPX credit of $0.95.
More...
 
Hi Guys,
Thanks for all the great questions and feedback.

I have a couple short questions that probably requires long answers. But I appreciate any and all insight.

1 - At the moment the SPX is at ~1226. I am looking at the Sept 1125/1140 Put at a credit of ~.70 (roughly 7% from the Index). Since I am still (obviously) new at this, I would appreciate feedback about why I should or shouldn't have taken that trade. I am not comfortable yet with the adjustments that could be necessary, which is why I looked for a decent credit so far OOM. Also, my plan is to sell a call spread deep OOM at a later date to increase my total return.

2 - Support and resistance. What methods have worked best for you in the past and what are some of the ways to figure it?

Thanks Again,

Neil
 
The delta for 1175 Sep Puts is .16, so you are taking a bit more risk. The reason for this being support on SPX at 1200, and a nice return on the money? Could you explain a bit?

Thanks
 
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